Executive Life of New York, or ELNY, is a name that still sends shudders down the spines of structured settlement professionals, trade associations and major structured settlement brokerage firms decades after the junk bond laden company was first put into receivership back in the early 1990's. The question now is will recent litigation being brought by savvy class action trial lawyers against the brokers who sold these contracts in the 1980's resurrect a whole series of questions as to how they were sold in the first place, the role of trade associations and State of NY regulators supervision of the assets during the 1990's and action leading up to and through the final liquidation in August of 2013.
Some background is necessary before we get to the news on the litigation working it's way through courts in the Pacific Northwest and the Southwestern US.
Executive Life of New York was one of the subsidiaries of First Executive Corporation, managed by Fred Carr and part of the junk bond era cadre of companies that bought, sold and financed the Drexel Burnham Lambert trading operation. Once concerns were voiced about the safety and liquidity of these investments held in annuity and insurance company portfolios, there was a slow motion crash of both the California and NY subsidiaries, with the unfortunate element being that at that time in the structured settlement profession, most of the big name firms were selling Executive Life contracts as fast as they could ship them out the door. All this despite what should have been general knowledge regarding the fragile nature of the company, the risk of a run on the assets by annuity holders and with a general disregard for diversification of credit risk.
In fact, the primary reason ELNY became so stuffed with assets and liabilities is that the State of NY was well known for providing superior protection and guarantee fund amounts for claimants, so you could argue that brokers cynically diverted more money to the NY company once concerns were voiced about the CA subsidiary, so as to mitigate plaintiff attorney and client concerns over the long term safety of the deal. This tactical "forum shopping" allowed them to continue to sell cut rate annuity products that saved casualty companies money on claims, while giving the implicit protection of the NY State Guarantee funds to trial lawyers in the event something did go south.
However, a funny thing happened on the way to liquidation, which was that ELNY, unlike it's California counter part, was not approved to be sold in a wide range of states, a fact that it appears was conveniently over looked by both the brokers, brokerage firms and ELNY compliance staffs, despite the fact that it is in fact illegal to sell insurance in a state where either the broker is not licensed or the company is not approved by the state insurance department. The structured settlement profession hung their hat on the argument that the client was actually the casualty company and or assignment company, so where THEY were located mattered more than where the actual claimant was located.
This ugly little fact lay dormant as it didn't really impact anyone while the company was under the supervision of the State of NY and benefits continued to be paid to claimants. However, once the managers of the liquidated estate of ELNY finally realized that their future obligations would be impossible to meet with the remaining assets, the domino's started to fall and the issue of where the annuitant lived had a substantial impact on state guarantee fund contributions and in the final determination of who got paid and who had to take a hair cut.
In part two of this review and analysis, which will be published tomorrow, I will explain the importance of this issue of where the annuitant was domiciled, where the contract was sold, who was licensed in what state and why it was a major determination of who got paid in full on claims and who did not. Also, a look at the court cases, changing public opinion on the treatment of the annuitants and possible governmental action to investigate how the structured settlement profession arrived at this point.